States Forced to Cut Services to the Bone: The Opportunity Cost of the Bank Bailout

Okay, the bailout of Wall Street isn't going to end up costing us $23.7 trillion dollars, the number that special inspector general Neil Barofsky fired off to call attention to the fact that banks are misusing the trillions we've given them, and are still hiding untold amounts of toxic assets off the books -- aided and abetted by the who-needs-transparency Treasury.

At a certain point, these numbers are so huge it becomes hard to keep them in perspective, to be clear what $4,700,000,000,000 means in the real world. But reading about the effects of the massive budget cuts almost every state in the country is being forced to make puts the figure in perspective very fast.

So while Goldman Sachs crows about its $3.44 billion second-quarter profit, and Citigroup and Bank of America strut over the $3 billion and $2.4 billion they respectively earned, we are left to think about the opportunity cost of the trillions we have given to Wall Street -- to ponder what else we could have done with that money.

Consider: at least 39 states have imposed budget cuts that hurt families and reduce vital services to their most vulnerable residents. The litany of those affected includes children, the elderly, the disabled, the sick, the homeless, the mentally ill, as well as college students and faculty, and state government workers.

But instead that money has gone to the banks without any fundamental reform of the system, and without any strings attached about how much they had to turn around and lend to help the real economy recover. Or, indeed, without any strings attached about having to tell us what they did with our money. So all across the country the fiscal ax is falling.

According to a report by the Center on Budget and Policy Priorities, at least 21 states have made cuts to public health programs, 22 states have cut programs for the elderly and disabled, 24 states have cut aid to K-12 education, and 32 states have cut assistance to public colleges and universities.

Alabama has canceled services that allow 1,100 seniors to stay in their own homes and avoid being sent to nursing homes.

Georgia has cut back on programs that offer the elderly Alzheimer services, drug assistance, and elder support, and made a $112 million cut in an initiative designed to help close the gap in funding between wealthy and poor school districts.

Connecticut has cut programs that help prevent child abuse and provide legal services for foster children.

Massachusetts has ordered cuts in geriatric mental health services, and prescription drug assistance, and made cuts in Head Start, universal pre-K programs, and services to help get special-needs children ready for school.

Keep in mind, all these services are being cut at a time when more and more people are finding themselves in need of them.

It's a perfect storm of suffering.

Looking at all the money that has gone to the banks -- and how well they seem to be doing, using it to bolster their bottom line (and even buy other banks) -- while the real economy is doing so poorly, proves just how wrong the government's approach to the recovery has been.

This approach was on full display during Bernanke's back-to-back testimony in front of the House on Tuesday and the Senate on Wednesday. He pointed to the bulls charging down Wall Street and the ballooning bottom line of the big banks as evidence that the steps taken by the Treasury and the Fed had helped avert a financial disaster. But he admitted that the prospects for increased employment or a decrease in home foreclosures wasn't likely for the next couple of years. And he admitted that "financial conditions remain stressed, and many households and businesses are finding credit difficult to obtain."

But wasn't that the main reason for the bailout -- to get the banks lending again?

Launching into his questioning of Bernanke, Senate Banking Committee Chairman Chris Dodd said, "Americans who have lost, or are worried about losing, their jobs, their homes, or their retirement security have watched as others reap the benefits of our government's response.... When can [the American taxpayers] expect the recovery that they have funded? When will working families see their rally?"

Instead, they are seeing programs slashed, services cut, and state budgets balanced on their backs.